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CDFIs rose to the occasion in 2020. But with the right partners, the best is yet to come.

Updated: Jul 9, 2021

By Suzanne Anarde

In 1994, the U.S. Treasury established the Community Development Financial Institution (CDFI) Fund, which gave new federal support for community lending.[LM1] A CDFI is, in simple terms, an institution that specifically serves and makes loans in low-income communities. Some CDFIs work in specific regions and some nationally. CDFIs have existed under many different names since before this country’s founding. Freedman’s Bank, chartered by Congress, provided financing to emancipated African Americans after the Civil War. South Shore Bank was the first community development bank focused on low-income communities. Even Benjamin Franklin issued small business loans to entrepreneurs. [LM2] The creation of the CDFI Fund threw government support behind them, supercharging CDFI growth in the 1990s. Today there are more than 1,100 certified CDFIs nationwide, managing more than $222 billion. The CDFI that I serve, Rural Community Assistance Corporation (RCAC), serves rural communities in the Western US, including Indigenous communities. Since 1988, we have leveraged more than $2.468 billion for projects.

Now, the state of California has an opportunity to supercharge CDFIs in the same way. The passage of Senate Bill 625 would create an Investment and Innovation Fund for California CDFI’s[LM3] . It would act as a dedicated loan fund for CDFI’s. The fund itself would be capitalized by foundations, individual donors, and private companies, not by the state or its taxpayers. It would mark a new era in mission driven investing, coming at a time when millions of Californians are in danger of being left behind in the wake of the global pandemic. If last year is any indication, CDFI’s may be their best hope.

CDFIs have been called “financial first responders,” quickly delivering real dollars to real people, particularly those hard-hit by the perfect storm of concurrent health, economic, and racial justice crises facing our nation. These strengths were exemplified in 2020, when the federal government looked to financial institutions, including CDFIs, to distribute an unprecedented level of funding support to Americans financially impacted by COVID-19. The nation’s largest PPP lender, JPMorgan Chase is about nine times the size of the entire CDFI industry but made only four times the amount of PPP loans that CDFIs did. [LM4] The lesson was clear: the money is only as good as the network that distributes it.

CDFI’s outperforming traditional banks is even more impressive when you consider that most CDFIs had to raise the funds they lent out while they were making loans. RCAC was able to secure more than $14 million in just days. Much of this work was done with a single phone or video call, a turnaround time unheard of in large banking institutions, reflecting the immense trust that exists between CDFIs and funders. In California, RCAC distributed $5.2 million in forgivable PPP loans to 43 small businesses. We didn’t simply wait for the phones to ring either. An outreach campaign actively sought out applicants, many of whom had no idea CDFIs like us were an option for a PPP loan.

What comes next will be far more challenging, but I believe it may also be our finest hour. A wave of business closures, evictions, and homelessness seems inevitable for low and very low-income communities, particularly those of color. RCAC is responding with a rental assistance program and a new loan fund to help businesses re-emerge into the marketplace. Other CDFIs are stepping up as well to serve. The California Investment and Innovation Fund would provide greater access to capital and a place for private and public funds to flow through the state.

California has successfully partnered with CDFI’s previously. The Golden State acquisition fund fueled the creation of affordable housing through CDFI support Until just a few years ago, the state’s COIN program used CDFIs to help direct tax credit investments from insurers, banks and others into low-income communities in need. When the CDFI tax credit expired, one of the state’s most effective partnerships with CDFIs came to a close.

Now I am calling on California lawmakers to consider the potential impact of a long-term partnership. The California Investment and Innovation Fund will play a vital and critical role in rebuilding our economy in an equitable and sustainable way. I predict a state sponsored fund will become a conduit for increased investments, which CDFIs will leverage. And we know that when California leads, others will follow and join. CDFIs stand ready with the knowledge, trust, history and expertise to serve. If California’s aim is to build a more inclusive economy where everyone has equal access to capital and the diverse and vast opportunities that brings, CDFIs have a proven history of delivering on that promise by being fiscally responsible stewards of capital in California most vulnerable communities.

Suzanne Anarde is the CEO of Rural Community Assistance Corporation, a Sacramento based CDFI.

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